Teaching Our Children About Money By Charles Byron, CFP®

Most of us could do a better job teaching our children about money. The reasons are many and varied, and possibly sometimes valid. We don’t want our children to think we are either rich or poor. It’s good for our children to believe we are firmly entrenched in that wonderful (and diminishing) place known as the American middle class. It’s important for money to not become the yardstick by which our kids measure people, to think people who have more are better and those who have less can be looked down upon. We don’t want our children to worry about money or become obsessed with money and the things money can buy. Mainly, we are generally too busy to take the extra time to explain the complicated relationship with a green piece of paper. The thing lost in all this is that in many ways, the way we use our money illustrates our values. And for good or bad, money is important to how we will get along in society. Money tossed about with a perceived recklessness teaches our children that money isn’t important. It shows them we don’t care about money. When we consistently deny them things with the comment, “We can’t afford it”, they are hearing that there is not enough. So, how much do they need to know and when? It’s easy to know when it’s time to have the “s-e-x” talk. There are physical signs and behavioral changes that let us know, and the discussion finds a way to go in the direction it needs to go. Kids know what to ask about sex. When it comes to money, they often don’t know where to start. There are some things we can do while our children are young that will share our values about money and teach them to be wise with money as they grow.

A great lesson taught through money is the difference between needs and wants. We’ve all heard, “But Daddy, I NEED it!” when the object of the need was an obvious want. Learning to prioritize is a huge lesson that can’t be taught early enough. Money can also be tied to goal setting. Saving for something can be more satisfying than immediate gratification when it is approached correctly. By encouraging our kids to save toward a goal we are teaching them discipline and contributing to their ability to learn that we can’t have everything we want when we want it. This also allows the parents to focus on saving rather than spending and teaches decision-making skills that aren’t included in most schooling. Parents can encourage saving by offering a “match” much like a 401(k). This shows the child that saving is valued and that it is rewarded. When kids are given money, try to give it in a way that allows them to divide it up for different uses. For example, a $20.00 gift can be given as three five dollar bills and five one dollar bills. This way, it is easy for the child to decide to save some, spend some, and offer some to charity, if your family is so inclined. Keep good records so your child can look back on the quarter or on the year and give some thought to the decisions that were made.

Let your children know when financial decisions are being made, and to the extent that they are old enough, let them participate. Vacations that involve the whole family are a major financial event. If kids participate in the planning, they will come to know what the financial implications are of various decisions. What matters more, flying first class or staying two extra days? Should we choose the room with the best view or take an extra excursion? The conversations around these topics engage children in the process and teach lessons at the same time. We always want it all, and maybe we can have everything we want, but are there trade-offs?

I’ve heard it said that credit cards are a way to buy what we don’t need with money we don’t have. While experienced adults understand the value of the judicious use of credit, for young adults it can be a dangerous thing. Speak with your kids about credit cards before they go to college. Credit card companies continue to target college students with exciting offers to live beyond their means.

Hopefully, you’ve already engaged with your children in discussing money matters. If you haven’t, maybe this essay will serve to begin the conversation. Whether you talk about it or not, the ability to manage money will play a significant role in your child’s future. It makes sense to help them prepare.